Goldman On Midstream Group: Upgrades 4, Downgrades One

Goldman Sachs Group upgraded its coverage on Midstreams from Neutral to Attractive, citing improved fundamentals. Analysts Theodore Durbin and Jerren Holde see return of volume growth in 2017 and further growth in NGL, oil and natural gas helping to generate increased margin.

The brokerage picked up four stocks in the group for upgrading:

One stock, EnLink Midstream LLC (NYSE: ENLC) was downgraded to a Sell rating on expensive valuation and limited growth.

Related Link: UBS Upgrades Xcel Energy, Expects Management To Maintain 4–6% EPS Forecast Through 2018

Justification For Ratings

In a research note to clients, the brokerage viewed, "In oil, we expect a 2Q17 production inflection, in gas 3–4 Bcf/d of long-term supply and demand growth, and in NGLs 600–700 k bpd of secular demand growth, all of which should increase asset utilization in the near-term, and require additional infrastructure over the medium- to long-term. We expect 4–5 percent annual distribution growth, with upside from additional projects."

The lead analyst thinks there are few risks of any addition dividend cuts, as leverage and coverage should show improvements in 2017 and 2018 — resulting in margins expansion. Goldman Sachs believes financial risks from capital markets have started to recede, thus improving capital costs though regulatory approval continues to pose challenges.

The brokerage does not see any big risk from rate hikes citing past performance compared to the results. "We believe midstream stock price correlation to crude oil prices will continue to fade," the analyst concluded.

Ratings, Target Prices And Trading Price

From Neutral To Buy

• Buckeye Partners: Price target of $78. Flat on the day at $68.15.
• Targa Resources: Target price increased from $41 to $52. Seen flat on the day at $46.80.

From Sell To Neutral

• Enbridge Energy: Increased price objective from $20 to $24. Seen down 0.04 percent at $23.86.
• Enable Midstream: Price target lifted from $13 to $16. Seen trading down 0.62 percent at $14.42.

Downgraded To Sell

• EnLink Midstream: Price objective reduced from $15 to $14. Seen trading down 2.8 percent at $15.60/

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